Severe drought and unprecedented weather conditions may cause family farmers to experience financial hardships. While some farmers decide to sell the family business and retire, others may find that bankruptcy provides the needed relief to continue operating.
As noted by the Administrative Office of the U.S. Courts, family farmers who have regular annual incomes may consider a Chapter 12 bankruptcy. Filing a Chapter 12 petition may provide a workable option to halt creditors’ collection actions and reorganize burdensome debts into a more manageable payment arrangement.
How a Chapter 12 bankruptcy reorganization plan works
After filing a Chapter 12 bankruptcy petition, a farmer has 90 days to submit a manageable repayment plan to creditors. The bankruptcy court must approve the plan in a confirmation hearing. A debtor typically agrees to pay unsecured creditors the balances owed them or use all available disposable income to repay them as much as possible.
Payments consist of a fixed amount that a debtor sends regularly to an appointed trustee. A plan lasts three years, but the court may approve a five-year plan. After completing the repayment schedule, the bankruptcy court may discharge the remaining balances.
How a Chapter 7 bankruptcy may provide relief
Farmers who choose liquidation over reorganization may petition for a Chapter 7 bankruptcy. As noted by Iowa State University’s Center for Agricultural Law and Taxation, secured creditors may retain their collateral and unsecured creditors must file a proof of claim with the court. A trustee may require a Chapter 7 petitioner to sell non-exempt assets and use the proceeds to repay creditors before the court discharges any remaining balances.
Family farmers experiencing financial difficulties have options to consider when seeking debt relief. An opportunity to move forward may come through an affordable payment arrangement or by liquidating non-exempt assets.